Embracing Technology—and Transforming Small Business— in Peru

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By Accion

Maria owns a corner store in Chorillos, a popular neighborhood in south Lima. There are more than 200,000 small “mom and pop” shops like Maria’s in Peru alone. And they are a universal feature in most other developing countries, too, collectively accounting for more than 70 percent of the consumer goods sold in emerging markets. But however significant their collective footprint, each individual independent shop operates at a serious disadvantage when dealing with purveyors and creditors. Maria’s shop is no exception.

A team from Accion recently visited Maria and were surprised that within 15 minutes of chatting with her, three salesmen from different distributors came to check her inventory or deliver stock in very small quantities—one of the vendors brought just five cans of cat food. Along with the inefficiencies of constant interruptions, these small-batch deliveries are considerably more expensive on a unit-cost basis for the shop owners. They’re inefficient for the distributors too—and also risky, since the vendors must collect and carry cash from all the shops as they make their rounds. But small-shop owners don’t have the liquidity to buy in volume, and vendors don’t have a viable alternative to cash on delivery. Accion is working to create a better model.

Venture Lab, Accion’s seed-stage investment vehicle, partnered with Tienda Pago in December 2015 to provide capital and strategic support as Tienda Pago builds and scales operations in Peru and beyond. Tienda Pago nurtures relationships with distributors of fast-moving consumer goods (FMCG) and with small shop owners. For the FMCG distributors, the independent shops are a key part of their strategy to maintain their profit margins and their bargaining power against large retailers. Now, thanks to the Tienda Pago relationship, some of the stress of doing business with the independents has been reduced.

We spoke with Carlos, a logistics manager working with the world’s largest soft drink brand; he is one of Tienda Pago’s partner distributors. After delivering two crates of soda to a local shop, Carlos told Accion how Tienda Pago relieves the burden of cash collection and reconciliation of invoices. Tienda Pago operates a mobile-payment platform to facilitate the shop owners’ payments to distributors. The more shops using the Tienda Pago platform, the fewer shops from which Carlos’s team have to collect and manually reconcile cash payments.

For the shop owners, Tienda Pago is also a source of affordable credit. Small businesses typically lack a credit history—one factor which often prevents them from accessing low-cost financial products from commercial banks. The small loan size they need is another key constraint: The average loan provided by Tienda Pago is less than US$400, which banks and other lending institutions would find too costly to serve. Tienda Pago is able to maintain a very low default rate because for the shop owners, their relationship with Tienda Pago—valuable in itself as a source of affordable credit—is also tied to their all-important relationship with suppliers.

Tienda Pago’s mobile-enabled loans allow small shop owners to make larger purchases and keep their shelves fully stocked while carefully and gradually growing their businesses. That has been the case for Maria who, with financing from Tienda Pago, has grown her store from a simple windowfront to an entire floor. She plans to convert it to a full self-service store in early 2017.

Accion hopes to see more innovations like Tienda Pago’s emerging from Peru. Similar to the rest of Latin America, Peru is still largely underbanked: Of a population of 30 million, only 8.5 million have credit products. Financial institutions struggle with default rates, which are as high as 30 percent on average. With just a couple of active venture capital funds and only a handful of accelerators, a main bottleneck for startup growth is the lack of funding. Accion looks forward to collaborating with partners to nurture and scale up innovative ideas and spur entrepreneurship in Peru to catalyze financial inclusion in the country.